Companies that specialize in collecting and processing monthly mortgage payments for other servicers are riding high.
By all accounts, the niche business - known as subservicing - has experienced a boom in volume in the past year. Volume is said to be rising briskly, though verifiable data is hard to come by.
At Consolidated Mortgage Corporation Services in Baton Rouge, La., for instance, subservicing volume doubled in 1995, and is on track to double again this year, according to Nancy Morazan, president and owner. She declined to be more specific, noting that her firm - like many other small companies in the field - is privately held.
Some of the better-known names said to be benefiting from the subservicing boom include Wendover Funding Inc., Greensboro, N.C.; Dovenmuehle Mortgage Inc., Schaumburg, Ill.; and Alliance Mortgage Co., Jacksonville, Fla.
The growth in subservicing reflects the proliferation of new mortgage products. As consumers have become savvier about choosing loans to fit their needs, lenders have responded with an array of variations on old- fashioned mortgages. But these loans - with such quirky features as quarterly interest rate adjustments and the ability for homeowners to draw down their equity - may prove difficult for lenders to service on their own.
Bank mergers are also playing a role. Acquirers often find themselves taking on portfolios of unusual loans that require expert management. Rather than develop the expertise, many are opting to hand the loans over to the specialized subservicers.
Increasingly, banks are finding that "it is more cost-effective to have a limited number of products" to service, said Ms. Morazan of Consolidated.
She said her company has benefited from the subservicing boom, picking up contracts to handle oddball loans, including adjustable-rate mortgages that reprice quarterly.
Michael A. Hyman, a senior vice president, says Wendover is picking up business from companies that are not ready to make the investment in the new technology systems developed by the Federal National Mortgage Association and Federal Home Loan Mortgage Corp.
The unit of State Street Boston Corp. has seen its business increase dramatically - 27% - in the last two years, Mr. Hyman said. Wendover now handles $9 billion in loans,
Merging banks are also throwing off some business. With other big decisions to consider in a merger, "consolidation of servicing is not always a priority," Mr. Hyman explained.
One Wendover client outsourced its servicing when it bought a servicing portfolio just before moving to a new servicing facility.
"They didn't want to add the servicing to its existing system and then have to move," Mr. Hyman said.
Wendover also subservices reverse mortgages - loans aimed at senior citizens that provide a monthly income drawn from the equity in a home. A growing number of lenders own these loans, but do not want to spend the time and resources required for servicing, Mr. Hyman explained.
Experts say that a decision to outsource all or some servicing often comes with the purchase of a servicing portfolio. The servicing technology used on the acquired portfolio might be incompatible with that of the purchaser. Or, a purchased portfolio might include loans outside the buyer's service area.
Edward Furash, a Washington-based consultant, said there was no specific profile of a company that outsources its servicing. Companies that outsource often do so because they are committed to the servicing business, but achieve more efficiency by jobbing out, he said.
"Where there is a decision to subservice, there are reasons against a decision to sell" the servicing, Mr. Furash said. Sometimes a company that no longer wants to service mortgages will send the servicing out because it paid more for a portfolio than it would receive if it sold the assets at that particular time.
